Question

Renée is a 28-year-old occupational therapist living in the Annex district of Toronto. She recently graduated from the University of Toronto and now works as an independent contractor assessing the legitimacy of claims made by car accident victims. Like many students, Renée accumulated a large student debt during her years at university and plans to pay it off within the next five years.

Cash Flow Statement For the Year Just Ended
Income
Professional billings	$	61,605
Less: Professional expenses and taxes		(25,590	)
Professional income net of expenses and taxes				$	36,015
Dividends (after taxes)					300
Total Income				$	36,315
Fixed Expenses
Rent					11,300
Student loan payments					4,600
Total Fixed Expenses				$	15,900
Variable Expenses
Utilities, personal, food, clothing, and dental				$	14,485
Moving expenses					395
Credit card interest					1,180
Recreation/entertainment					2,060
Vacations					6,370
Total Variable Expenses				$	24,490
Total Expenses				$	40,390
Surplus/(Deficit)				($	4,075	)

Personal Balance Sheet as of Today
Assets
Liquid Assets
Bank account	$	1,710
Personal Possessions	$	11,980
Investment Assets
BCE Shares	$	4,725
Total Assets	$	18,415
Liabilities
Current Liabilities
Credit card balances	$	9,555
Long-Term Liabilities
Student loan		22,280
Total Liabilities	$	31,835
Net Worth	($	13,420	)

Using Renée’s financial statements, compute the following ratios: (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Debt to Asset ratio
Current ratio
Liquidity ratio		months

Answer 1

Part 1)

The value of debt to asset ratio is calculated as below;

Debt to Asset Ratio = Total Debt/Total Assets

Here, Total Debt = $31,835 and Total Assets = $18,415

Using these values in the above formula, we get,

Debt to Asset Ratio = 31,835/18,415 = 1.73

_____

Part 2)

The value of current ratio is determined as follows:

Current Ratio = Total Current Assets/Total Current Liabilities

Here, Total Current Assets = 1,710 and Total Current Liabilities = $9,555

Using these values in the above formula, we get,

Current Ratio = 1,710/9,555 = .18

_____

Part 3)

The value of liquidity ratio is arrived as below:

Liquidity Ratio = Liquid Assets/Monthly Expenses

Here, Liquid Assets = $1,710 and Monthly Expenses = Total Expenses/12 = 40,390/12 = $3,365.83

Using these values in the above formula, we get,

Liquidity Ratio = 1,710/3,365.83 = 0.51 months

_____

Tabular Representation:

Debt to Asset Ratio	1.73
Current Ratio	0.18
Liquidity Ratio	0.51	months